Full text of "ANNUAL REPORT - ONTARIO ENERGY BOARD 1997-1998"

Ontario

Energy Board

: ANNUAL REPORT 1997 - 1998

Ontario Encryy Board > Annual Rcpni 109? - 1091!

Ministry of

Ministers de

Energy, Science

I'Energie, des Sciences

and Technology

et de la Technologie

Office of the

Bureau du

Minister

ministre

Hearst Block

Edifice Hearst

900 Bay Street

900, rue Bay

Toronto ON M7A2E1

Tel. (416) 327-6715

Telephone (416) 327-6715

Fax (416) 327-6754

Telecopies (416) 327-6754

The Honorable Hilary M. Weston

Lieutenant Governor of the Province of Ontario

I hereby submit the annual report of the Ontario Energy Board. It reviews the events and
activities of the fiscal year ending March 31, 1998.

Respectfully submitted,
/ Jim Wi

Jim Wilson

Minister of Energy, Science and Technology

omigaqjOTRGY eoaub

TABLE OF CONTENTS

MESSAGE FROM THE CHAIR

BOARD MEMBERSHIP

OEB ROLES AND RESPONSIBILITIES

A DYNAMIC ENERGY MARKETPLACE

BOARD ORGANIZATION AND RESOURCES

STREAMLINING THE REGULATORY PROCESS

REGULATORY AGENDA: 1997-98 HIGHLIGHTS

LIST OF PROCEEDINGS

GLOSSARY OF TERMS

The Ontario Energy Board is located at:

2300 Yonge Street, Suite 2601

Toronto, Ontario M4P 1E4

Telephone [416] 481-1967 or

Toll Free in Canada 1-888-OEBOARD [632-6273]

Fax [416] 440-7656

Website located at httpy/www.oeb.gov.on.ca

Copies of the Annual Report in English and in French and other OEB publications may be obtained through the Board.

Photo by Tessa j. Buchan Photography.

Design and production by Staigh 8T Green Communications Inc., Ottawa, Ontario.

Printed in Canada on Beckett Expression containing 20% recycled fibre with 20% post-consumer.

ISSN 0317-4891

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18S8

onsumer protection is the
heart of the expanded role

| envisaged for the OEB
in the provincial
I government's White Paper
on electricity.

The Chair

MOVING
INTO A
FUTURE OF
CHANGE

I was honoured to be
appointed Chair of
the Ontario Energy
Board in March 1998,
and welcome the challenge of
leading the Board into a future of
change. We live in exciting times
for both the gas and electricity
industries in Ontario, and for
their customers. The provincial
government is proposing to open
up the electricity market to com-
petition. Meanwhile, competitive
forces have been gathering
momentum in the natural gas market
for over a decade. These develop-
ments create both opportunities and
risks. In this dynamic environment
the Board's regulatory responsibilities
must and will change.

What will not change is the Board's
traditional role of protecting the
consumer and preserving the safe
and reliable supply and delivery of

energy. The Ontario public can rest assured that
consumer protection and system integrity will remain
unswerving commitments of the Ontario Energy Board.

During 1997-98, the Board took a number of steps
to put the consumer first. The gas utilities were
directed to develop a Code of Conduct to govern
their relationship with both affiliate and independent
gas marketers. The interim Code approved by the
Board is designed to create a level playing field
among suppliers, and ensure that customers are
properly informed about the new choices available
in the marketplace.

This year the Board also proposed amendments to
the legislation governing the gas sector that would
empower the OEB to defend consumer interests
during the transition to a more fully competitive
market. One safeguard would be a requirement that
gas utilities offer a standard supply option for
consumers who prefer to purchase gas from the
utility rather than from agents, brokers or marketers.

Consumer protection is the heart of the expanded
role envisaged for the OEB in the provincial
government's White Paper on electricity. Subject to
legislative approval of the government's proposals,
the Board will oversee the electricity marketplace
and regulate the monopoly parts of the industry.
The Board has observer status on the Market
Design Committee that is planning the transition

to competition in electricity. Through this channel
the Board has kept closely attuned to the emerging
marketplace to prepare for the possibility of new
regulatory responsibilities.

A further priority for the Board this year has been
the streamlining of the regulatory process. An
example is the portfolio approach adopted in the
Board's Guidelines for Assessing and Reporting on Natural
Gas Distribution System Expansion in Ontario issued in
January 1998. The portfolio approach to planning
will provide the utilities with more flexibility in
determining which expansion projects to undertake,
while the Board retains overall regulatory control.

In the same vein, the Board this year applied its
Draft Guidelines on a Formula-Based Return on Common
Equity for Regulated Utilities for the first time. The use
of a generic model for calculating a fair rate of
return is expected to simplify regulatory proceedings
for the utilities and other stakeholders.

In the past year, the Board has been gearing up for
changing roles through a major organizational
restructuring. We have strengthened our regulatory
policy-making capability to help shape the ground
rules for the new marketplace, as well as putting in
place a heightened level of compliance monitoring,
auditing and enforcement to hold regulated utilities
accountable in a complex environment. We have
also consolidated our corporate services to provide
the necessary administrative and logistical support.
I am confident we are ready for whatever challenges
the future may hold.

to an evolving marketplace.
Ms. Rounding also made an
exceptional contribution to the
administrative justice community
through leadership roles in national
and provincial associations.

The energy sector touches every
individual, family, business and
public organization in the
province. I am looking forward to
working with everyone interested in
bringing to Ontario the benefits of
a competitive energy market while
maintaining the historic commitment
to safe, reliable and accessible
energy services.

J^^cu^R^.

Floyd Laughren
Chair

I would like to take this occasion to salute my
predecessor as OEB Chair, Marie Rounding, who
served in this post with distinction for six years.
Under her direction the Board developed the
capability and flexibility to respond effectively

(As of March 31,1998)

OiiluiiuEraylJuuiii > Annual ficpoil 198Y - 1998

CHAIR

Floyd Laughren joined the
Ontario Energy Board as Chair
in March 1998, leaving a 27-year
career in provincial politics to
take on the challenge of leading
the Board. Mr. Laughren had
been the longest-serving Member
of the Legislative Assembly of
Ontario as the MPP for Nickel
Belt since 1971. His achievements
include serving as Finance
Minister and Deputy Premier in
the Rae government, with respon-
sibility for the former Ministries
of Treasury and Economics,
Revenue and Financial Institutions.
He was also chair of the Policy
and Priorities Board of Cabinet
and sat on the Cabinet
Subcommittee on Industrial
Assistance. Prior to his election
in 1971, Mr. Laughren taught
economics at Cambrian College
of Applied Arts and Technology
in Sudbury and worked in the
retail sector in western Canada.
He has a business diploma from
Ryerson Polytechnic University
and a Bachelor of Arts in
economics from York University.

VICE-CHAIR

Appointed Vice-Chair in June 1993, George A. Dominy
has extensive experience in the energy field in both
the private and public sectors. Prior to joining the
Board, he served as Director - Electricity, Oil and Gas
Branch at the former Ministry of Environment and
Energy. Mr. Dominy holds a Master's degree in
mathematics from Cambridge University.

MEMBERS

Edward J. Robertson became a Board Member
in May 1992. Before joining the Board, he was
Chairman of the Manitoba Public Utilities Board.
He has extensive private sector experience in the
United Kingdom, including service from 1972 to
1977 as a Director of the Confederation of British
Industries in London, England. He entered the
Ontario Public Service in 1977.

Having held positions in the gas industry and staff
positions at the OEB, Paul Vlahos was appointed a
Board Member in October 1994. Prior to his
appointment as a Member, he served as General
Manager at the Ontario Telephone Service
Commission and taught at the University of New
Brunswick. He holds a Master's degree in economics.

H. Gail Morrison, a lawyer, was appointed to the
Board in March 1996. Ms. Morrison, who joined
the Ontario Public Service in 1982, previously held
various positions in the Office of the Ombudsman
and was most recently Executive Co-ordinator with
the Environmental Assessment Board. She holds
Masters' degrees in law and physics.

Roger MLR. Higgin was appointed to the Board in
September 1996. Prior to joining the Board, Dr. Higgin
was General Manager and Chief Operating Officer of
Unisearch Associates Inc. He held a number of senior
positions in the former Ministries of the Environment
and Energy, including Assistant Deputy Minister -
Programs and Technology Division, and previously
served as a member of the Ontario Energy Board from
1988 to 1991. Dr. Higgin holds a doctorate in chemical
engineering and a Master of Business Administration.

Judith B. Simon, an environmental scientist, was
appointed a part-time Board Member in May 1992.
She previously held managerial positions with the
Ministries of Industry, Trade and Technology and of
the Environment, and was an energy planner with
the former Ministry of Energy. She is currently a
consultant specializing in environmental assessment
and strategic planning.

F. Anne Drozd is a fellow of the Institute of Chartered
Accountants of Ontario. She is President of ACHOS,
a management consulting firm. Ms. Drozd has practiced
as a Certified Management Consultant since 1982 and
has extensive experience in the regulatory environment.
She was appointed a part-time Board Member in
April 1993.

Christine Elwell, a lawyer, joined the Board as a part-
time Member in April 1995. She holds a Master of
Laws degree from the London School of Economics
and Political Science. Ms. Elwell has previously
worked in the petrochemical and nuclear industries
in both Alberta and Ontario, in labour relations and
environmental policy, and is currently an Adjunct
Professor of Law at Queen's University.

Sally F. Zerker was appointed a part-
time Board Member in June 1997.
She holds a Ph.D. in economics from
the University of Toronto and has
been a professor at York University
in Toronto since 1970. Ms. Zerker
has lectured and published articles
about the international oil industry.

Terms Ending in 1997-98

Marie C. Rounding completed
her term as Chair of the Ontario
Energy Board in February 1998,
having served in that post since
January 1992. A lawyer and former
teacher, Ms. Rounding has held a
number of senior positions with
the Ontario Ministry of the
Attorney General, with a focus on
administrative and regulatory law.
During her term Ms. Rounding
was active in the administrative
justice community through several
federal and provincial associations.

Pamela W. Hardie left the Board
in April 1997 after nearly seven
years of service. A lawyer, she
joined the Board in July 1990 and
was formerly with the Ontario
Securities Commission and the
Office of the Ombudsman.

The Ontario Energy Board would like
to thank both of these individuals
for their service to the Board.

Oitoiu Era tad -:■ Auimal Bf^iinl 1S8T - 19S8

OEB Roles

And Responsibilities

ales must be just and
reasonable for both
consumers and
shareholders.

The Ontario Energy Board [OEB]
is a regulatory tribunal of the
Ontario Government, reporting
to the Minister of Energy, Science
and Technology* As an arm's
length agency, the Board functions
independently from the government.

The Ontario Energy Board Act
establishes most of the Board's
responsibilities. In addition,
the Municipal Franchises Act, the
Petroleum Resources Act, the Public
Utilities Act, the Assessment Act and
the Toronto District Heating Corporation
Act give jurisdiction to the Board.

Ontario's Gas Pipeline System

ONTARIO

°°°ooooo

LEGEND

!••■•• TransCanada PipeLines
....... Union Gas

...... Centra Gas

ooooo Great Lakes
inaon Panhandle Eastern
dooc Empire State
...... Tennesse Gas

Iroquois

UNITED
STATES

* In October 1997, provincial energy responsibilities were

transferred from the former Ministry of Environment and Energy to the

new Ministry of Energy, Science and Technology.

SETTING NATURAL GAS RATES

The Board regulates Ontario's natural gas utilities,
which are required by legislation to submit the rates
they propose to charge their customers to the OEB
for review and approval. The Board establishes rates
for each natural gas utility following a public hearing.
The rates cover the commodity cost of gas, passed
through to the customer without mark-up, as well
as the transportation costs to Ontario and the
distribution and operating costs of the local utility.

Where users purchase gas directly from producers
or marketers, the OEB controls the rates that the
utilities may charge for transporting, storing and
distributing the gas in Ontario. The Board also
establishes the price that the utility pays for gas
under buy-sell arrangements in which, typically, a
broker purchases gas on behalf of Ontario consumers
from producers in western Canada and sells it to the
utility for delivery to the burner tip.

To determine rates, the Board first establishes the
company's rate base, that is, the amount invested in
assets dedicated to service. The Board also determines
the rate of return that investors should have the
opportunity to earn, and the revenue required by
the utility to pay its expenses and make the allowed
return. Finally, the Board decides the fair share of the
total cost of providing service to be borne by each
customer class - residential, industrial and commercial.

In setting rates, the Board endeavours to strike a fair
balance between the prices paid by customers and the
rate of return shareholders of the utilities are allowed
to earn on their investment. Rates must be just and
reasonable for both consumers and shareholders.

REVIEWING HYDRO RATE
PROPOSALS

Ontario Hydro is required by law to submit any
proposed change in its bulk power rates to the
Minister of Energy, Science and Technology, who
then refers the proposal to the Board. Bulk power
rates are the wholesale rates that Hydro charges
municipal utilities and direct industrial customers.

After a public hearing, the OEB submits its Report
with recommendations to the Minister. The Board's
role is an advisory one and its recommendations are
not binding on Hydro.

Chaired by an OEB staff member, the
OPCC represents various provincial
ministries who together consider
the environmental and safety
aspects of pipeline construction.
Regional agencies also take part in
the discussions as necessary.

In conjunction with a pipeline
approval, the OEB may also grant
authority to expropriate land, and
authorize pipeline crossings of
highways, utility lines and ditches.

REFERENCES AND GENERIC
HEARINGS

The Lieutenant Governor in Council [LGIC], the
Minister of Energy, Science and Technology or
the Minister of Natural Resources may refer a
matter to the Board for a public hearing and report.
The OEB's Reports are normally advisory in nature.
The Board may also hold generic hearings on its
own initiative on matters under its jurisdiction.

PIPELINE CONSTRUCTION

OEB approval is required to construct a natural gas
transmission line in Ontario. Such projects generally
involve large-diameter, high-pressure pipelines with
substantial capital costs and environmental implications.
The Board assesses whether the proposed construction
is in the public interest by considering need, safety,
economic feasibility, community benefits, security of
supply and environmental impact. The OEB's
Environmental Guidelines set out the Board's expec-
tations for locating, constructing, and operating
pipelines in Ontario.

MUNICIPAL
FRANCHISE
AGREEMENTS

Each municipality may grant a
gas utility the right to provide
gas service and use road allowances
or utility easements within its
borders. The specific terms and
conditions of the franchise agree-
ment require OEB approval. The
Board has approved a model
agreement which has been the basis
for franchise agreements issued
since 1987.

Before a formal application is filed with the Board,
a pipeline construction proposal is reviewed by the
Ontario Pipeline Co-ordination Committee [OPCC].

Ontario Euciyy Board Animal Report 1997 - 1998

Natural Gas Franchise Areas

■ CONSUMERS GAS
| UNION •
J CENTRA

&>*w

* As of January I, 1998 Union and Centra are merged.

CERTIFICATES
OF PUBLIC
CONVENIENCE
AND NECESSITY

Board approval, in the form of a
certificate, is necessary to construct
any works to supply gas in Ontario.
Approval is granted only where
public convenience and necessity
support the extension of service.

STORAGE AREAS

Natural gas may be injected into
a geological formation in Ontario
only where the land is designated
as a storage area by the LGIC.
The Board recommends areas that
are suitable for designation.
Once the LGIC has approved
designation, the Board may
authorize a storage area's use.
The OEB also determines the

compensation payable to the owners of land where
storage pools are situated, if the parties cannot
agree among themselves.

In addition, applications for drilling permits for wells
within designated storage areas are referred to the Board
for a report to the Minister of Natural Resources.

OWNERSHIP CHANGES

Under the legislation, a natural gas utility must
obtain permission of the LGIC to sell its system or
amalgamate with another company. LGIC approval is
also necessary when any person wishes to acquire or
hold more than 20 per cent of any class of shares.
Applications for such changes in ownership of utilities
must be made to the Board, for a hearing and report.

MONITORING UNDERTAKINGS

In consideration for certain approvals obtained from
the LGIC, the gas utilities have provided specific
undertakings. The Board is responsible for administering
many of these undertakings or commitments. This
role involves monitoring compliance with the terms
of undertakings, approving exemptions and reporting
to the Minister of Energy, Science and Technology
or the LGIC.

OEB Regulatory

Activities 1997-98

Case Type

Applications
Received

Decisions*

Orders
(General)*

Hearing
Days*

Franchise Approvals

Certificates of Public

Convenience & Necessity

Pipeline Construction

Reference from LCIC

Reference from Minister

of Natural Resources

Natural Gas Rates

Pipeline Exemptions

Uniform Accounting

Orders

Undertakings

Other Orders
TOTALS

125

116

148

* Includes cases /activities initiated this fiscal year or continued from prior years.

A Dynamic Energy

Onlaiiotajj'taii Aiuiual Uciioit 199V - 19S8

he distribution of natural

gas involves an extensive
network of pipelines
and storage facilities
requiring substantial
capital investments.

Natural gas supplies nearly one
third - about 32 per cent - of
Ontario's end-use energy needs.
Fifty eight per cent of residential
energy, 49 per cent of energy in
the commercial /institutional sector
and 39 per cent of the province's
industrial energy requirements are
provided by gas.

Electricity meets a further 18 per
cent of Ontario's energy demand.
Electricity drives information
technology, lights and heats homes
and businesses, and is an energy
source for such industries as
automobile manufacturing, pulp
and paper and mining.

The rest of Ontario's energy needs
are met by oil, coal, wood and natural
gas liquids, such as propane.

NATURAL GAS
SALES AND
DISTRIBUTION

Ontario obtains some 93 per cent
of its gas supplies from western
Canada through the TransCanada
PipeLines Limited [TCPL] and
related systems. The province also
imports about 5 per cent of its
gas requirements from the United
States and produces approximately
2 per cent itself.

The distribution of natural gas involves an extensive
network of pipelines and storage facilities requiring
substantial capital investments. A monopoly arrange-
ment is used to avoid costly duplication of facilities.

Ontario has more than half of Canadian gas storage
capacity, mostly developed from depleted natural
gas fields in southwestern Ontario. Storage reservoirs
are filled during the summer when demand for gas
is low, and drawn down in winter when demand is
high. The use of storage contributes to an efficient
system with lower costs to customers.

Local Distribution Companies (LDCs)

Almost all natural gas in Ontario is distributed by
three local utilities holding franchises and certificates
to transport gas in specific areas of the province.

The Consumers' Gas Company Ltd. (Consumers Gas]
is Ontario's largest natural gas distribution utility,
serving more than 1.3 million residential, commercial
and industrial customers in central and eastern
Ontario - including the Greater Toronto Area, the
Niagara Peninsula, Ottawa, Brockville, Peterborough,
Barrie and many other communities. It also provides
a wholesale service to gas distribution companies
outside its franchise area. Consumers Gas is a wholly-
owned subsidiary company of IPL Energy Inc.
(formerly lnterprovincial Pipeline System Inc.]

Union Gas Limited (Union] is the second-largest gas
distributor in the province and serves more than 1 million
residential, commercial and industrial customers in south-
western, northern and eastern Ontario. It also provides
natural gas storage and transportation services for

other utilities and energy market participants in
Ontario, Quebec and the United States. The current
company was formed by the amalgamation of the
former Union Gas Limited and Centra Gas Ontario Inc.
(Centra] on January 1, 1998 under the name Union Gas
Limited. The amalgamated company is owned by
Westcoast Energy Inc. References in this Annual
Report to Centra or Union pertaining to dates after
January 1, 1998 are to the amalgamated company.

Natural Resource Gas Limited [NRG] is a privately-
owned utility serving about 4,000 customers in the
Aylmer area.

The Board regulates the rates charged by these three
companies. In addition, Ontario has five small gas
companies that are exempt from rate regulation
under the OEB Act, and two municipally-owned
gas utilities that are not regulated by the Board.

ELECTRICITY
GENERATION,
SALES AND
DISTRIBUTION

Ontario Hydro [Hydro], a
provincially owned corporation,
generates and transmits most of
the electricity in Ontario.
Created by provincial statute in
1906, Hydro operates today under
the Power Corporation Act.

Hydro sells power wholesale to
305 municipal utilities, who in
turn serve 2,946,000 residential
and business customers. Hydro
also directly serves almost 1 million
retail customers and 106 large
industrial users.

Direct Purchase

Under the existing legislation, only LDCs are permitted
to sell gas to end users in Ontario. In order to
assist the development of a competitive natural gas
market in the province, the Board has authorized
purchasing options that allow gas users to obtain
their gas supplies outside the province - either
directly or through agents, brokers or marketers -
and have them distributed by the LDC.

This year the Ontario Energy Marketers Association

succeeded the former Direct Purchase Industry
Committee. The association brings together represen-
tatives of agents, brokers and marketers to foster
development of a more competitive market while
ensuring consumer protection. The OEB has observer
status in the association.

Hydro's system includes 29,000
kilometres of transmission lines and
109,000 kilometres of distribution
lines, as well as 69 hydroelectric
stations, five nuclear stations and
six operating fossil-fuelled stations.
The demand contribution of these
stations in calendar 1997 was:
48 per cent nuclear, 25 per cent
hydroelectric, 17 per cent fossil and
10 per cent from other sources, such
as independent power producers.

Expanded OEB Role Proposed

In November 1997 the Ontario
government released a White Paper,
Direction for Change - Charting a
Course for Competitive Electricity and
Jobs in Ontario, that proposes to
end Ontario Hydro's monopoly in
the electricity market and introduce
competition for all customers

Ontario Energy tad

itii lie id

beginning in the year 2000. The
paper adopts the general direction
proposed by the Advisory Committee
on Competition in Ontario's
Electricity System, chaired by the
Hon. Donald S. Macdonald, which
reported to the government in
lime 1996.

transmission and distribution tariffs, within a framework
set by the Minister, as well as for regulating investments
in the expansion of the transmission grid. The govern-
ment proposes to direct the Board to examine, advise
on and subsequently implement a performance-based
approach to regulation that promotes efficiency in
the monopoly parts of the industry to the benefit
of consumers.

The White Paper proposes to
reorganize Hydro into three
separate Crown corporations.
One would be an Independent
Market Operator, a non-profit
corporation, that would act as an
impartial manager of the market
system and run an electricity
exchange in which power is
dispatched on a least-cost basis.

Two commercial electrical companies
would also be formed - one to take
ownership of Hydro's generation
assets and sell power in competition
with other generators, and another
to operate Hydro's transmission
facilities and other energy
businesses. The government aims
to separate the transmission system,
which remains a natural monopoly,
from the generation business, so
all competitors will have an equal
opportunity to sell electricity
in Ontario.

Under the government's plan, which
is subject to legislative approval,
the Ontario Energy Board would
receive an expanded mandate to
oversee the electricity marketplace
and regulate the monopoly parts of
the electricity industry. The OEB
would be responsible for regulating

The OEB would also ensure that local distribution
companies fulfill their obligations to connect and
serve their customers, and would oversee the activities
of the Independent Market Operator and promote
the development of competition in generation and
retail services. A further Board responsibility would
be to ensure the licensing of all market participants,
including generators, transmitters, distributors, the
Independent Market Operator, retailers and wholesalers.

Finally, the OEB would continue to regulate the
natural gas business and would be responsible for
the licensing of gas marketers. It would adopt
compatible approaches on natural gas and electricity,
particularly regarding the rules governing investment
and affiliate relationships.

In line with the White Paper, the government has
established a Market Design Committee comprised
of industry and consumer representatives to shape
the rules for the careful and measured transformation
of the market. The OEB has observer status on this
committee, which submitted its first report at the
end of March 1998.

The OEB normally has seven full-time Members
including the Chair and Vice-Chair, plus four part-
time Members. It is a multi-disciplinary group
comprising economists, lawyers, accountants and
business people with knowledge of the energy industry.

counsel to complete the public
record, advise Board members
on regulatory issues and assist
in drafting decisions, reports
and orders.

Members are appointed by the LGIC for terms of
one to three years. The Board normally sits in
three-member panels to hear major cases, but two
Members constitute a quorum.

STAFF REORGANIZED

In 1997-98 the OEB operated with an approved
complement of 41 positions, in addition to the Board
Members. As well, two legal staff were permanently
assigned to the OEB but considered part of the
complement of the Ministry of the Attorney General.

During the year the OEB essentially completed a
major staff reorganization to position the Board to
meet the coming challenges and requirements in the
gas and electricity industries. The OEB is now
structured into two main sections - Regulatory
Affairs and Corporate Services.

Regulatory Affairs is responsible for the provision
of professional, technical and advisory services to
the Board. It has three components:

• The Applications /Monitoring group processes all
applications to the Board, participates in settlement
negotiations and monitors the financial performance
of regulated utilities. Staff manage the procedural
aspects of hearings, take part in hearings through

The Strategic Services group
develops regulatory policy options,
conducts research on current and
emerging issues and undertakes
strategic regulatory planning.
Staff maintain contact with the
utilities, stakeholder groups and
other regulatory and energy
bodies in Canada and the
United States.

The Audit/ Compliance/ Energy
Returns Officer group conducts
audits, ensures gas utilities comply
with Board Decisions and Orders,
performs compliance monitoring
of undertakings by the utilities,
and monitors various aspects
of the utilities' financial perfor-
mance on an ongoing and
confidential basis. Staff also
provide accounting, financial and
technical advice to the Board.

he Board is a multi-
disciplinary group
comprising econo-
mists, lawyers,
accountants and
business people
with knowledge of
the energy industry.

Ontario Emm Board -■ Annual Report 190? - 1998

Corporate Services consolidates a
range of support services to the
Board:

• The Business Services and
Planning group provides financial,
human resources, administration
and planning co-ordination services.

• Information Technology and
Operations manages and delivers
office automation and technology-
related services including security,
telecommunications support
and development and mainte-
nance of computer systems.

The Legal Services group provides legal advice to
Board Members and staff on all legal matters that
arise in a hearing or that come within the jurisdiction
of the Board - including regulations, contracts and
litigation - as well as acting as counsel to Board staff
in hearings.

The Board Secretary's Office performs all registrar
functions including making physical arrangements
for hearings, maintaining public files and processing
cost awards. The group also provides case
administration services to assist hearing panels
and Board technical staff, plus communications
and library services.

Ontario Energy Board

CHAIR
F. Laughren

VICE-CHAIR
G.A. Dominy

ADMINISTRATIVE
■ ASSISTANT
•F.A. Lee (Acting)

BOARD MEMBERS

FULL-TIME
R.M.R Higgin
H.G. Morrison
EJ, Robertson

PVlahos

Vacant (I)

PART-TIME
FA. Drozd
C. Elwell
|.B. Simon
S.F. Zerlcer

DIRECTOR CORPORATE

SERVICES

**GA. Brown (Acting)

ADMINISTRATIVE
ASSISTANT
M.E- Connor

MANAGER

BUSINESS SERVICES

« PLANNING

•*• B. Oden (Acting)

ADMINISTRATIVE
- CO-ORDINATOR

I. Kimon

FINANCIAL OFFICER

TEAM LEADER IT

fit OPERATIONS

C.B. Mathis

PROGRAMMER

ANALYST

T.C. Tran

OFFICE SYSTEMS

ANALYST

G. Mayer-Powell

BOARD SECRETARY
PB. Pudge

ASSISTANT BOARD
SECRETARY -
PH. O'Dell

COMMUNICATIONS
OFFICER
L. Wilson

BOARD COUNSEL
I.Lea

BOARD SOLICITOR.
S.B. McOnn

DIRECTOR

REGULATORY AFFAIRS

R.A. Cappadocia

ADMINISTRATIVE

ASSISTANT

H.K.Wong

TEAM LEADER

-STRATEGIC SERVICES

M.O. McLeod

RESEARCH S

POLICY ANALYST

PW. Conboy

|X, Kwik

Vacant (I)

MANAGER

APPLICATIONS/

MONITORING

A.P Barrett

REGULATORY OFFICER

H.Desai

M.C. Garner

B.L. Hewson

C.J. Mackie

N.|. McKay

E.W. Sweet

H.W. Thiessen

E.K.Waill

Vacant (2)

TEAM LEADER AUDIT/

COMPLIANCE/ERO

R.LPugh

DEPUTY ERO/

UTILITY ANALYST

M.J. O'Shea

Vacant (I)

S. Lila

FILE

FINANCE S
ADMINISTRATION

at INFORMATION

CLERK

AC. Macatangay

CLERK
D.R. less

LIBRARIAN
L.F. Buccilli

SECRETARY

CASE

(Bilingual)

ADMINISTRATOR _

D.G. Woomed

N.E.Woodall

).F. Sakauye

RECEPTIONIST

F. Ufond

V-,

* J.L Byrnes' home position
** E.A. Mills' home position
*** G.A. Browns' home position

CLERICAL ASSISTANT

G. Dragic

^ -*

FINANCIAL REPORT

As a provincial agency, the Board is subject to the
financial and administrative policies established by
Management Board of Cabinet and the Minister of
Finance. The Ontario Energy Board Act authorizes the
Board to recover its costs by assessing costs against
applicants, usually the utilities involved in hearings
and related activities.

Following a hearing, the Board issues an invoice to
the applicant concerned. The amount to be paid

includes the Board's out-of-pocket
and direct expenses attributable
to the specific hearing, as well as
a contribution toward the Board's
fixed costs, such as overhead and
payroll. In this way, the full
cost of the Board's operations is
recouped annually from the natural
gas companies and Ontario Hydro,
with no financial burden on the
Ontario taxpayers.

[

OEB Spending Analysis 1997-98

Standard Account

Estimates
$

Approved

Budget

Actual

Expenditures

Salaries and Wages

2,851,900

2,462,511

Employee Benefits

556,900

751,730

Transportation &

124,400

102,381

Communications

Services

2,432,700

1,232,700

755,562

Supplies & Equipment
TOTAL

130,100

325,045

6,096,000*

4,896,000

4,397,229

* Includes $1.2 million for the Electronic Regulatory Filing initiative which was not expended in the 1997-98 fiscal year.
This amount was on holdback by the Ministry of Environment and Energy and was therefore not included in the budget.

Uulaiiu tai iiuuid - Aiumal Kipil 1997 - m

The Regulatory Process

he Board believes a
successful settlement
I conference process results
in OEB Decisions that are
in the public interest and
accepted by the parties,
while saving time and
money for all concerned.

The OEB is working to streamline
the regulatory process in order
to reduce costs, improve service
levels and achieve operational
efficiencies. The Board is moving
toward more light-handed regulation
as the energy marketplace
becomes more competitive.

SETTLEMENT
CONFERENCE
GUIDELINES ISSUED

The OEB often directs the parties
to a proceeding to participate in
settlement conferences before the
hearing to clarify information,
narrow issues and as far as possible
reach a consensus. Settlement
agreements are filed with the
Board for approval. The Board
believes a successful settlement
conference process results in OEB
Decisions that are in the public
interest and accepted by the parties,
while saving time and money for
all concerned.

For the guidance of all parties,
the Board in late 1997 released
comprehensive Settlement Conference

Guidelines covering such matters as the rights and
obligations of participants, the responsibilities of
the conference facilitator, the role of Board staff,
and how the Board deals with settlement proposals.
The guidelines were developed in consultation with
stakeholders.

ELECTRONIC FILING GETS
GO-AHEAD

The OEB is moving from a paper-based regulatory
process to an electronic one. To facilitate this
change, the Board has launched an Electronic
Regulatory Filing (ERF] Project in conjunction with
the National Energy Board and several Canadian
energy companies. Under way since early 1996, the
project is designed to create an electronic system
linking all regulatory participants for the preparation,
exchange, use and reuse of regulatory information.

During 1997-98 a second Cost-Benefit Analysis
confirmed earlier findings that the ERF system
would pay for itself within approximately three
years, and a proof of concept site was developed to
demonstrate some of the system's functions. These
activities completed the Information Architecture
Design and Development phase of the project. Based
on the results, the Board - with strong industry
support - decided to proceed with full implementation.
The first electronic regulatory filing is targeted for 1999.

INTERVENORS AND COST
AWARDS

Since the OEB's activities can affect a variety of public
and special interest groups, Board proceedings
attract a wide range of intervenors. The Consumers'
Association of Canada, Energy Probe, Pollution
Probe, the Green Energy Coalition, the Association
of Municipalities of Ontario, the Ontario
Association of School Business Officials, the Ontario
Coalition Against Poverty, the Ontario Federation of
Agriculture, the Ontario Native Alliance, the
Industrial Gas Users Association and the Heating,
Ventilation and Air Conditioning Contractors
Coalition Inc. were among the dozens of parties to
take part in OEB proceedings in 1997-98.

Like some other tribunals, the OEB has jurisdiction
to make cost awards at the conclusion of a proceeding.
In November 1997 the Board issued a new Cost
Eligibility Guideline, following a review of comments on
a draft proposal circulated to all regulatory participants.

The guideline stipulates that an intervenor in an
OEB proceeding is eligible for a cost award where
the intervenor primarily represents the direct

interests of consumers in relation
to regulated services, a public
interest relevant to the Board's
mandate, or a significant grouping
of interests relevant to the
Board's mandate. In addition, the
Board has discretion to find an
intervenor eligible for a cost
award in a particular proceeding.

The OEB invited potential partici-
pants in the cost award process
in future proceedings to make
submissions demonstrating their
eligibility under the criteria in the
guideline. The submissions were
assessed and the parties notified
of eligibility.

The Board continues to review its
overall cost guidelines regarding
the level of awards, again in
consultation with participants
in proceedings.

Intervenor Cost Awards 1997-98*

Case Type

Proceedings

(#)

Cost Orders

(#)

Amount Awarded
($)

Natural Gas Rates

2,152,395

Pipeline Construction

110,622

Other Board Orders

238,855

Hydro: Bulk Power Rates

551,871

TOTAL

120

3,053,743

* Refers to fiscal year in which cost award issued. Hearings occurring in one fiscal year
may not have cost awards issued until a subsequent fiscal year.

Ontario LtorgjtaiH Annua! liepoit 1997- 1998

MORE WRITTEN
HEARINGS

The ONGA/OEB Forum, which
brings together senior representa-
tives of the Ontario Natural Gas
Association and the OEB, has
called for more expeditious ways
of dealing with straightforward
cases. For some time the OEB
has routinely used written hearings,
rather than more time-consuming
and costly oral proceedings, in
franchise renewal applications.
This year the Board began testing
this practice in facilities cases.
Written hearings were used for a
number of non-controversial
applications to construct pipelines
and other natural gas works.

INCREASED EMPHASIS ON
COMMUNICATIONS

In a rapidly changing environment, the Board recognizes
the need for open and ongoing communications
with stakeholders and the public. A number of steps
were taken this year to improve communications with
both the energy industry and the wider community.

The OEB began constructing a Web site on the
Internet, which will eventually provide instant on-line
access to significant decisions and orders as well as
news releases, key speeches, publications and other
documents. A readership survey was taken to assess
how well the monthly newsletter, the Regulatory
Agenda, is meeting stakeholder needs. At the same
time, all OEB publications were examined to gauge
their effectiveness, and all aspects of customer service
- such as routing of phone calls and response
times - were reviewed.

STRATEGIC PLAN
REVISED

The Board adopted a strategic
plan in 1995 and has undertaken a
series of initiatives set out in the
plan, such as improvements to the
hearing process, introduction of a
performance measurement system
and creation of an External
Advisory Committee. This year
the Board decided to review the
strategic plan in light of changing
circumstances. Board Members
and employees participated in
three strategic planning sessions,
leading to the approval of a new
strategic plan as well as revised
vision, mission and values statements
in January 1998. As the fiscal year
ended, the OEB was finalizing an
operational plan that will identify
strategic priorities for
implementation in 1998-99.

During the year the Board Chair and Members spoke
at such events as the Canadian Association of Members
of Public Utility Tribunals Annual Educational
Conference, the Canadian Independent Power Producers
Conference and Trade Show and a Canadian Institute
conference on electricity competition. The Chair,
Vice-Chair and a Board Member appeared before the
provincial Legislature's Select Committee on Ontario
Hydro Nuclear Affairs in the fall of 1997.

The OEB's External Advisory Committee continued to
provide a valuable channel for two-way communication
between the Board and its stakeholders on procedural
and regulatory issues, outside the hearing room. The
committee includes representatives of the natural gas
utilities, brokers, marketers, Ontario Hydro, consumers,
environmental groups and industrial energy users.

Below are highlights of some major OEB proceedings
conducted during the fiscal year ending March 31, 1998.

Regulatory Agenda: 1997-98 Highlights

Below are highlights of some major OEB proceedings
conducted during the fiscal year ending March 31, 1998.

REPORT ON NATURAL GAS
LEGISLATIVE CHANGE

(EBO 202)

In late 1995 the OEB launched a review of the natural
gas market structure after 10 years of deregulation.
The process began with two stakeholder workshops
and continued with a Board Report in September
1996 followed by creation of a stakeholder Working
Group that reported in May 1997.

When advised in mid-1997 that the ministry would
be assisted by the OEB's views on changes to the
Ontario Energy Board Act, the Board decided to develop
proposals for amendments to pave the way for
further deregulation of gas supply-related services,
while ensuring protection of Ontario gas consumers
and the public interest. A consultation process on
legislative changes was held with key stakeholders
during August 1997.

In December 1997 the Board issued an Advisory
Report to the Minister of Energy, Science and Technology
on Legislative Change Requirements for Natural Gas
Deregulation. The report reaffirmed the Board's view
that the legislative restrictions on end-use gas sales
should be removed to allow unregulated gas sales by
non-LDC suppliers anywhere in the province.
The Board believes that removal of the barriers to
gas title transfers will facilitate a move to full retail
access and competition in the Ontario natural gas
market. The Board also concluded that the public

interest would best be served by a
managed process to encourage
market restructuring while pro-
tecting gas customers during the
transition.

The Board found that to achieve
such protection an industry Self-
Management Organization [SMO]
operating under administrative
agreements with the OEB and the
Ministry of Consumer and
Commercial Relations should be
established. The Board would
licence agents, brokers and
marketers and the SMO could
administer the licences. Other
key features of the transition
include continued regulation of
the monopoly storage, transmission
and distribution function of the
LDCs as well as improving the level
of customer information about the
deregulated market.

The Board also proposed the
replacement of the regulated
system gas supply with a regulated
standard LDC gas service. This
standard supply offering would be
maintained by the LDCs until the
Board finds that market conditions,
including consumer awareness,
competition and industry self-
management, have developed to
the point where a regulated
option is no longer needed.

tie Board believes
thai removal of the
barriers to gas title
transfers will
facilitate a move to
full retail access
and competition in
the Ontario natural
gas market.

Ontario Eueigyltoaid j ; Annual limwl 1997 -1998

Another recommendation in the
Report was creation of a Market
Design Task Force made up of
affected stakeholders to develop
appropriate structures for full and
effective commodity retail
competition. The Board was in
the process of establishing the
Market Design Task Force as
the fiscal year ended.

CONSUMERS GAS/
CENTRA/ UNION:
CODE OF CONDUCT

(EBRO 492-03/493-03/494-04)

During the 10- Year Market
Review, some participants
expressed concern that LDC
marketing affiliates established to
provide direct purchase options
might gain preferential access to
monopoly services and customer
information. The Board requested
the Market Review Working
Group to make recommendations
in its report for a Code of
Conduct to govern the relationship
of the utilities with both affiliate
and independent gas marketers,
to ensure a level playing field in
the evolving deregulated gas
commodity market.

However, in late March 1997 Consumers Gas indicated
that its new marketing affiliate, Consumersfirst,
would be in operation when agency billing and
collection [ABC] T-service commenced in May 1997.
ABC T-service is a new direct purchase option
approved by the Board which enables brokers to put
their customers' gas supply costs on the utility bill
by payment of a fee to the utility.

The entry of Consumers first precipitated the need
for a Code of Conduct. The Board therefore directed
Consumers Gas to submit a draft Code by April 18
and also directed Union and Centra to submit such
a Code prior to the start-up of ABC T-service in
their franchise areas. Consumers Gas and
Union /Centra worked with the Market Review
participants and submitted essentially the same draft
Code, which the Board decided to review through a
joint proceeding.

In a Decision with Reasons issued on May 15, 1997,
the Board reviewed parties' suggestions for an interim
Code to allow ABC T-service to go ahead. The Board
made a number of revisions to the draft and accepted
the revised version as an Interim LDC Code of Conduct.
The utilities were directed to comply with the Interim
Code as a condition of providing ABC T-service.

The Board disagreed with the utilities' characterization
of the Code as voluntary. Rather, the Board considered
the Code to be a compilation of a number of
mandatory requirements stemming from the legislation
and Undertakings and meeting public interest
requirements for the operation of franchised gas
monopoly services.

To correct customer confusion, the Board required
the use of a disclaimer in all advertising and other
representations about ABC T-service, to indicate that

the price of gas under this service is not regulated
by the OEB. The Board also directed the LDCs to
implement a corrective customer information program
to make clear that agents, brokers and marketers [ABMs],
including affiliates offering direct purchase options,
are not subject to the OEB's control or oversight.

In addition, the Board found that the LDC Code of
Conduct should include an additional standard on
Relationship Marketing and Advertising to be developed
by the utilities in conjunction with the ABMs and
the Working Group. The new standard should
address how both independent and affiliate gas
marketers utilizing ABC T-service may represent their
relationship with the utility, to provide customers
with greater clarity concerning the respective roles
of the regulated utility and the unregulated ABMs.

NATURAL GAS SYSTEM
EXPANSION

(EBO 188)

In 1995 the Board, on its own motion, issued a
Notice of Public Hearing into matters related to
natural gas system expansion. Following a settle-
ment conference and a review of written submissions,
the Board released an Interim Report in August 1996
containing decisions on issues of principle and
directing the gas utilities to file draft guidelines and
policies reflecting its findings. The utilities filed a
common submission in September and various parties
responded. A second settlement conference in early
1997 led to a settlement agreement subscribed to by
the utilities and some parties and a dissenting document
prepared by other parties.

The Board in its Final Report in
January 1998 issued Guidelines for
Assessing and Reporting on Natural Gas
Distribution System Expansion in Ontario.
The Guidelines set out the economic
feasibility, monitoring and environ-
mental requirements for expansion
projects. They provide a common
analysis and reporting framework
to be applied by regulated Ontario
LDCs - specifically Consumers
Gas and Union Gas Limited.

The main change from prior policy
and practice is the use of a
portfolio approach, as opposed to
a project-by-project approach, to the
planning, analysis, management and
reporting of distribution expansion
projects. The intent of the portfolio
approach is to provide the utilities
a greater degree of flexibility in
determining which projects to
undertake, while the Board retains
overall regulatory control to ensure
no undue cross-subsidy or rate
impacts result from distribution
system expansion.

Ontario Energy Board v Auuual Ilipl 1007 - 1901!

CONSUMERS GAS:
MAIN RATES FISCAL
1998

(EBRO 495)

In August 1997 the OEB issued
Reasons for Decision on Consumers
Gas' rates application for fiscal 1998,
beginning October 1, 1997. The
company claimed an overall revenue
deficiency of $60.7 million,
adjusted to $58.6 million to reflect
the results of the settlement pro-
posal. The Board found an overall
revenue deficiency of $20 million,
to be recovered from customers
through revised rates.

About $22.6 million of the
$38.6 million reduction in the
claimed revenue deficiency was
due to the Board's finding that a
fair rate of return on common
equity was 10.3 per cent, rather
than 11.5 per cent sought by the
company. This level of return was
derived from applying for the
first time the Board's Draft
Guidelines on a Formula-Based Return
on Common Equity for Regulated
Utilities, which use the equity risk
premium method for determining
the fair rate of return. The risk
premium reflects the utility's risk
relative to the long Canada
bond yield.

Of the remaining $16 million
reduction in the claimed revenue

deficiency, $7.7 million related to a global decrease in
the company's forecast operating and maintenance
expenses. The Board made specific suggestions for
the Company to consider in reaching this overall
budget reduction target. Other adjustments to
claimed revenue deficiency include the reduction
of costs resulting from transactions between the
Company and its affiliates and imputed revenue arising
from the Board's adoption of full costing rather
than marginal costing for the company's
ancillary services.

CENTRA/ UNION:
ADJUSTMENTS

RATE

(EBRO 493-04/494-06)

In October 1997 Union and Centra requested
approval of rate increases to reflect updated gas cost
and transportation toll forecasts and the disposition
of forecast balances in Union's Purchased Gas
Variance Account and Centra's gas-cost-related
deferral accounts. Union also sought changes to
delivery rates to reflect load balancing costs and the
implications of changes to the buy /sell reference
price as directed by the Board in the last main rates
proceeding (EBRO 493/494].

In November 1997 the Industrial Gas Users
Association (1GUA] requested the OEB to make
interim changes to the equity return component of
the currently approved rates for Union and Centra
by applying the adjustment mechanism in the
Board's Draft Guidelines on a Formula-Based Return on
Common Equity for Regulated Utilities. The Guidelines had
been used by the Board in determining the common
equity component of the rates for Consumers Gas
in its most recent rates case (EBRO 495].

In making this request, IGUA noted its understanding
that Union and Centra did not intend to file revised
rates for 1998.

During the hearing in December 1997 the Board
issued an Oral Decision approving interim gas cost
changes as proposed by Union and Centra, effective
January 1, 1998. The Board then proceeded to hear
submissions on changing the return on equity for both
utilities and on the load balancing and related issues.

The utilities filed information applying the adjust-
ment mechanism in the Guidelines and agreed with
the incorporation of the results in the final Rate
Order in the current proceedings, if the Board
deemed that appropriate. The resulting projected
return on equity was 10.44 per cent for Union
compared with 11 per cent in the EBRO 493/494
Decision, and 10.69 per cent for Centra compared
with 11.25 per cent in the earlier proceeding. No
party opposed the utilities' proposals.

In a Decision with Reasons in February 1998, the
Board found that the changes to the respective
returns on equity were appropriate and ordered the
resulting rate changes to be effective January 1, 1998.
The Board also dealt with Union's delivery rate pro-
posals and other issues raised by the applications.
The utilities were directed to prepare final rate
schedules reflecting the Board's findings, to take
effect January 1,1998. [Although Union and Centra
merged on January 1, 1998, their rate structures
remained separate.]

UNION: VARY
ORDER (CITY OF
KITCHENER)

(EBRO 494-05/ EBO 177-09)

In July 1997 the City of Kitchener
[City] filed a motion to vary the
Board's EBRO 494/ EBO 177-09
rate order for Union's 1997 test
year as it relates to the M9 rate
class. The City is one of the two
customers in this rate class.

The Board reviewed both its
Decision and the Rate Order
and did not find an inconsistency
between them of the nature
alleged by the City. The Board
was of the view that the rate set
in the Order for M9 customers
was within the range of just and
reasonable rates that could be set
based on the evidence adduced in
the hearing and the Board's findings
in the Decision. Accordingly, the
Board informed the City in
September 1997 that it declined
to hear the motion.

The City applied for leave to
appeal to the Ontario Divisional
Court [General Division] in
December 1997 and the Court
granted leave in February 1998.

iiaiiu

sso

UNION /CENTRA:

AFFILIATE

TRANSACTIONS

CUSTOMER INFORMATION
SERVICES

(EBO 177-15)

In September 1997 the Board
received an application from
Centra and Union under their
Undertakings with the LGIC for
approval of affiliate transactions
related to the purchase of
Customer Information System
[CIS] services. The utilities
proposed to purchase CIS services
from a non-subsidiary affiliate,
Union Energy Inc. [UEI] CIS
Division, pursuant to a five-year
contract commencing in 1998.

The Board was satisfied that the
Companies had provided a persua-
sive rationale for replacement of their
existing CIS systems as well as for
the decision to purchase CIS services
as opposed to developing systems
in-house. The Board accepted the
outsourcing of CIS services to an
affiliate, noting that there were
currently no third party service
providers offering the software
package selected. The Board's
approval was subject to certain
conditions including annual
approval of specific payments and
monitoring and reporting
requirements. The Board also

approved the provision of administrative services
by Union to the UEI CIS Division, also subject to
certain conditions.

SEPARATION OF ANCILLARY
BUSINESSES

(EBO 177-17)

In a further application dated October 1997 under
the Undertakings, Union and Centra proposed to
transfer to UEI their ancillary equipment rental,
merchandise sales and financing businesses. The
Board completed the hearing in March 1998 and a
decision was pending at year end.

CENTRA: FRANCHISE
RENEWALS - ORILLIA,
GRAVENHURST, SEVERN,
BRACEBRIDGE

(EBA 767/768/769/783)

In fall 1996 Centra applied to the Board for franchise
renewals for the City of Orillia, the Town of
Gravenhurst, the Township of Severn and the
Township of Bracebridge. Centra and the municipalities
consented to a written hearing process.

Centra proposed to use the Model Gas Franchise
Agreement, which has formed the basis of franchise
agreements since 1987, with no changes. The munici-
palities sought to amend the Model Agreement so
they could charge a permit fee for plan review and
site inspection when Centra undertakes construction
work on municipal highways. The municipalities
noted that the Savings and Restructuring Act, which
took effect in January 1996, gave municipalities the

right, with certain restrictions, to enact bylaws
imposing user fees.

In its Decision with Reasons in March 1998, the
Board indicated it was not persuaded that the new
statutory provision precluded the prohibition of such
fees in a franchise agreement. The new provision
does not require municipalities to charge fees; it
merely allows them to do so.

The Board continues to accept that there are great
advantages to the uniform application of a Model
Agreement to all municipal franchises relating to the
provision of natural gas. Uniform conditions for all
municipalities prevent unfairness. To require a utility
to pay user fees in some municipalities and not in
others would result in cross-subsidies under the
current rate structure. Nor did the Board believe
that the resulting costs to ratepayers would be
insignificant. Accordingly, the Board found that the
franchise agreements should be in the model form,
without the requested amendments.

The Board observed that the political and financial
climate in which municipalities operate may well have
changed from that prevailing when the Model
Agreement was drafted. The Board therefore directed
Board Staff to consult with the utilities, municipalities
and other interested parties as to the timing, potential
issues and format for a generic proceeding to review
the Model Franchise Agreement.

UNION: SOMBRA
POOL RESIDUAL GAS
COMPENSATION

(EBO 184)

In May 1997 the Board issued
Decisions with Reasons - Phase II
regarding the compensation to be
paid by Union to landowners in
the Sombra Pool for residual gas
remaining underground when
gas was first injected in 1990.
Sombra Pool is a designated gas
storage area in Lambton County.
In the Phase I Decision with
Reasons in September 199S, the
OEB found that there was no
enforceable agreement among the
parties as to compensation and
the Board would therefore proceed
to determine the matter.
Following a settlement process, a
hearing was held in March 1997.

In its ruling the Board concluded
that compensation for the residual
gas should be made on the basis
of a royalty, in line with Ontario
precedent. The Board found that
the appropriate royalty rate was
6V4 per cent of the market price
of gas, to be applied to the
agreed volumes. The Board also
ordered payment of interest
calculated in accordance with the
settlement agreement.

Ontario toy? tail v Annual lienim 109? - 1998

CANENERCO:
STORAGE RIGHTS
AND PIPELINE
CONSTRUCTION

(EBO201/EBLO263)

CanEnerco Limited produces oil
and gas from seven pools in
southwestern Ontario and sells
gas to marketers at points outside
the province. In June 1997 the
Company applied to the Board
for authorization to inject, store
and remove gas from the
Chatham 7-17-XII Pool. It also
sought leave to construct 5.8 km
of NPS 10 [nominal pipe size 10"
diameter] pipeline to connect the
pool to Union's transmission
system, and to construct gathering
lines and other facilities. CanEnerco
indicated that it intended to use
the Chatham Pool as a seasonal
storage facility for its own gas and
had no plans to offer storage
services to third parties.

n its Decision with Reasons in
February 1998, the Board granted
the requested storage rights for
an initial term of five years, subject
to certain conditions. The Board
believed this Decision represented
a fair balance between CanEnerco's
current business plans and the need
to safeguard the public interest over
the long run.

The Board noted that geological formations suitable
for gas storage are a provincial resource that require
protection and assurance they are being used in the
public interest. The Board believed it was consistent
with provincial policy to ensure that, if the Chatham
Pool should be needed to provide storage services
for the Ontario market in the future, it can be made
available for this purpose. When applying for renewal
or extension of the term, CanEnerco will be expected
to show that continued use of the pool to store its
own gas is in the public interest.

The Board granted the storage rights despite the
fact that it was unable to assess the profitability of
the seasonal operation, noting that the economic
risk of the project falls entirely on the Company's
owners and does not affect utility ratepayers. The
Board denied the request for leave to construct the
NPS 10 line, as CanEnerco's discussions with Union
on the proposed interconnection to Union's trans-
mission system were only in the preliminary stages
and questions regarding the route were unresolved.
The Board did, however, grant leave to construct
the gathering lines, subject to conditions, to permit
the pool to be used as a storage facility.

List Of Proceedings

The following is a tabular listing of all proceedings arising from applications and references received or initiated by
the Board during the fiscal year ended March 31, 1998. Also listed are proceedings arising in earlier years and dealt
with by the Board in the 1997-98 fiscal year.

CASE
TYPE

FILE
NUMBER

APPLICANT

CASE DESCRIPTION

DECISION/ORDER
ISSUED

Natural Gas Rates Applications

EBRO

491-01

NRG

Amendments to Rate 3 Schedule

May 22, 1997

EBRO

492-03/493-03/
494-04

Consumers Gas/
Centra/Union

Market Review and LDC
Code of Conduct

May 15, 1997

EBRO

493-04/494-06

Union

Gas cost motions

Partial -

December 9, 1997/
Final -
February 10, 1998

EBRO

493-05/494-07

Union

Quarterly Rate Adjustment

In progress

EBRO

494-03

Union

Motion to reopen hearing respecting
storage contracting

September 26, 1997

EBRO

494-05

Union

Motion by City of Kitchener to vary
the Board's final Rate Order

September 23, 1997

EBRO

494-08

Union

Rates associated with transmission
and storage of gas for M12
customers

In progress

EBRO

495

Consumers Gas

Main Rates Fiscal 1998

August 21, 1997

EBRO

496

NRG

Main Rates Fiscal 1998 & 1999

In progress

EBRO

496-01

NRG

Main Rates Fiscal 1998 & 1999 -
Interim

September 26, 1997

EBRO

497

Consumers Gas

Main Rates Fiscal 1999

In progress

EBRO

497-01

Consumers Gas

Incentive mechanisms in relation to
O&M and DSM

In progress

Pipeline Construction

EBLO

258

Consumers Gas

Black Creek and Coveny Pools

June 19, 1997

EBLO

259

Union

Village of Wiarton, Town of
Southampton, Township of Saugeen

April 30, 1997

EBLO

260

Consumers Gas

Perth Reinforcement Project

July 16, 1997

Ontario Euergj lioanl <- /tmual Report mi - \m

CASE FILE

TYPE NUMBER

APPLICANT

CASE DESCRIPTION

DECISION/ORDER
ISSUED

EBLO

261

Consumers Gas

EBLO

262

Consumers Gas

EBLO

263

CanEnerco Ltd.

EBLO

264

Union

EBLO

265

Union

Township of Clearview

East Valley Reinforcement Project

Chatham 7-17-XII Pool

Lennox Project

Townships of Opasatika,
Cargill and Cumming

July 4, 1997
September 30, 1997
February 4, 1998
In progress
In progress

Franchise Renewals

EBA

764

Consumers Gas

City of Brockville

July 25, 1997

EBA

767

Centra

City of Orillia

March 31, 1998

EBA

767-01

Centra

City of Orillia

June 25, 1997

EBA

768

Centra

Town of Gravenhurst

March 31, 1998

EBA

768-01

Centra

Town of Gravenhurst

June 25, 1997

EBA

769

Centra

Township of Severn

March 31, 1998

EBA

769-01

Centra

Township of Severn

June 25, 1997

EBA

770

Centra

Township of Oro-Medonte

November 3, 1997

EBA

770-01

Centra

Township of Oro-Medonte

June 25, 1997

EBA

782

Consumers Gas

Township of King

April 14, 1997

EBA

783

Centra

Town of Bracebridge

March 31, 1998

EBA

783-01

Centra

Town of Bracebridge

June 25, 1997

EBA

784

Consumers Gas

Town of Collingwood

May 26, 1997

EBA

786

Union

Township of Blandford-Blenheim

May 28, 1997

EBA

787

Consumers Gas

Town of Hawkesbury

April 23, 1997

EBA

789

Centra

Town of Vankleek Hill

October 21, 1997

EBA

789-01

Centra

Town of Vankleek Hill

April 23, 1997

EBA

790

Centra

Township of Lochiel

September 5, 1997

EBA

791

Centra

Town of Longueuil

In progress

EBA

791-01

Centra

Town of Longueuil

October 6, 1997

[

CASE FILE

TYPE NUMBER

APPLICANT

CASE DESCRIPTION

DECISION/ORDER
ISSUED

EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA

EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA

792

Centra

793

Centra

795

Consumers Gas

795-01

Consumers Gas

796

Consumers Gas

797

Consumers Gas

798

Consumers Gas

799

Consumers Gas

800

Consumers Gas

801

Consumers Gas

802

Consumers Gas

803

Centra

804

Centra

805

Centra

806

Centra

807

Union

808

Union

809

Consumers Gas

810

Consumers Gas

811

Consumers Gas

812

Consumers Gas

813

Consumers Gas

814

Consumers Gas

815

Consumers Gas

816

Consumers Gas

817

Consumers Gas

819

Consumers Gas

Town of McNab

Township of Ross

Town of Aurora

Township of Lancaster

Township of Horton

Township of Kenyon

Township of Stafford and Pembroke

Township of Front of Leeds
and Lansdowne

Township of South Elmsley

Town of Perth

Village of Cardinal

Town of Dryden

Township of Thurlow

County of Prince Edward

City of Owen Sound

Township of West Hawkesbury

Township of Oro-Medonte

Township of Montague

Town of Midland

Town of East Gwillimbury

Township of Tay

Township of Kitley

Township of Tiny

Town of Am prior

Township of Elizabethtown

Township of Ramsay

September 25, 1997
September 25, 1997
October 31, 1997
April 23, 1997
July 8, 1997
July 8, 1997
June 13, 1997
June 13, 1997
November 3, 1997

July 8, 1997
August 12, 1997
September 29, 1997
November 12, 1997
September 25, 1997
October 16, 1997
October 21, 1997
October 20, 1997
November 24, 1997
November 24, 1997
December 5, 1997
October 21, 1997
Decembers, 1997
Decembers, 1997
Decembers, 1997
Decembers, 1997
Decembers, 1997
Decembers, 1997

Uniaiiu Luciyy Ltoaiu Annual lluitoit 1997 199U

CASE FILE

TYPE NUMBER

APPLICANT

CASE DESCRIPTION

DECISION/ORDER
ISSUED

EBA

820

Consumers Gas

Township of Springwater

EBA

821

Consumers Gas

Township of Smiths Falls

EBA

822

Consumers Gas

Township of North Elmsley

EBA

823

Consumers Gas

Township of Goulboun

EBA

824

Consumers Gas

Town of New Tecumseth

EBA

825

Centra

Township of Pittsburgh

EBA

825-01

Centra

Township of Pittsburgh

EBA

826

Union

Township of St. Vincent

EBA

827

Consumers Gas

Town of Georgina

EBA

827-01

Consumers Gas

Town of Georgina

EBA

828

Consumers Gas

Township of West Carleton

EBA

829

Consumers Gas

Town of Whitchurch-Stouffville

EBA

829-01

Consumers Gas

Town of Whitchurch-Stouffville

EBA

830

Centra

Township of Cornwall

EBA

830-01

Centra

Township of Cornwall

EBA

831

Consumers Gas

Town of Lindsay

EBA

831-01

Consumers Gas

Town of Lindsay

EBA

832

Consumers Gas

Township of Drummond

EBA
EBA

833
834

Union
Consumers Gas

City of Sarnia
Township of Beckwith

EBA

835

Union

Town of Greater Napanee

EBA

836

Consumers Gas

Town of Almonte

EBA

836-01

Consumers Gas

Town of Almonte

EBA

837

Consumers Gas

Township of Charlottenburgh

EBA

838

Consumers Gas

City of Kanata

EBA

839

Consumers Gas

Township of Severn

EBA

839-01

Consumers Gas

Township of Severn

EBA

840

Consumers Gas

Town of Carleton Place

January 23, 1998
March 4, 1998
March 26, 1998
January 23, 1998
December 12, 1997
In progress
September 9, 1997
January 15, 1998
In progress
September 16, 1997
March 20, 1998
In progress
September 19, 1997
In progress
October 6, 1997
March 31, 1998
September 19, 1997
March 26, 1998
In progress
January 23, 1998
In progress
March 13, 1998
October 3, 1997
December 30, 1997
January 8, 1998
In progress
January 19, 1998
In progress

CASE FILE

TYPE NUMBER

APPLICANT

CASE DESCRIPTION

DECISION/ORDER
ISSUED

EBA
EBA
EBA
EBA
EBA
EBA
EBA
EBA

EBA
EBA
EBA

840-01

847

847-01

848

848-01

849

849-01

850

851
852
853

EBC
EBC
EBC
EBC
EBC
EBC
EBC
EBC
EBC
EBC
EBC
EBC
EBC

248/EBA 750
250/EBA 751
253/EBA 754
254/EBA 755
256/EBA 772
257/EBA 773
258/EBA 774
259/EBA 775
260/EBA 776
261/EBA777
262/EBA 778
263/EBA 779
264/EBA 780

Consumers Gas

Town of Carleton Place

January 7, 1998

Consumers Gas

Township of Innisfil

In progress

Consumers Gas

Township of Innisfil

January 7, 1998

Consumers Gas

Township of Ops

In progress

Consumers Gas

Township of Ops

March 2, 1998

Consumers Gas

Township of Clarington

In progress

Consumers Gas

Township of Clarington

March 2, 1998

Union

Townships of Casmir, Jennings
and Appleby

In progress

Consumers Gas

Township of Manvers

In progress

Consumers Gas

Township of North Glengarry

In progress

Consumers Gas

Township of Percy

In progress

iise Applications

Northern Cross Pipelines

Township of Ashfield

Closed

Northern Cross Pipelines

Township of West Wawanosh

Closed

Centra

Village of Finch

April 18, 1997

Centra

Township of Finch

May 2, 1997

Union

Town of Port Elgin

April 30, 1997

Union

Town of Southampton

April 30, 1997

Union

Town of Wiarton

April 30, 1997

Union

Village of Tara

April 30, 1997

Union

Village of Shallow Lake

April 30, 1997

Union

Village of Hepworth

April 30, 1997

Union

Township of Arran

April 30, 1997

Union

Township of Saugeen

April 30, 1997

Union

Township of Amabel

April 30, 1997

Ontario Eiieiyylloaid < Annul Report 1997-1998

[

CASE

FILE

APPLICANT

TYPE

NUMBER

EBC

265/EBA 781

Union

EBC

266/EBA 785

Consumers Gas

EBC

268/EBA 788

Centra

EBC

269/EBA 794

Centra

EBC

271/EBA 818

Consumers Gas

EBC

272/EBA 841

Consumers Gas

CASE DESCRIPTION

DECISION/ORDER
ISSUED

Certificate of Public Convenience and Necessity

EBC

223

Consumers Gas

EBC

267

Centra

EBC

270

Consumers Gas

EBC

277

Potter Station

EBC

278

Union

EBC

279

Union

Pipeline Exemptions

Consumers Gas

Union

100

101

Union

Uniform Accounting Orders

UA 106-01 Unii

UA 109

UA 110 Union/Centra

Union
NRG

Township of Keppel

April 30, 1997

Township of Clearview

July 4, 1997

Township of Barclay

July 28, 1998

Township of Mountain

August 20, 1997

Village of Athens

January 20, 1998

Village of Chalk River

In progress

Township of East Garafraxa

September 2, 1997

Township of Zealand

July 28, 1997

Township of the Rear of Yonge
and Escott

January 20, 1998

Unorganized Township of Stoddart

In progress

Township of Opasatika

In progress

Townships of Cargill and Cumming

In progress

Community of Carp

August 13, 1997

Leamington North Reinforcement
Project

July 25, 1997

London South Reinforcement
Project

September 12, 1997

Nanticoke Area Reinforcement
Project

January 27, 1998

High Temp Plastic Vents
(supplemental)

August 28, 1997

Consultants for long term financing
strategy report

Septembers, 1997

One time costs associated with
amalgamation of Centra & Union

July 16, 1997

[

CASE FILE

TYPE NUMBER

APPLICANT

CASE DESCRIPTION

DECISION/ORDER
ISSUED

111

Consumers Gas

Comprehensive Customer
Information Plan

September 11, 1997

112

Centra

CIP deferral account

in progress

113

Centra

Incremental costs associated with
the Ten Year Market Review

July 17, 1997

114

Union

Energy balancing option to large
industrial customers

November 18, 1997

115

Union

Market based rates for long term
storage

In progress

116

Consumers Gas

Heating Value Differential Account

In progress

117

Consumers Gas

Union Gas Deferral Account

In progress

118

Consumers Gas

Costs associated with unbundling

In progress

119

Consumers Gas

Increase in municipal taxes as a
result of Bills 106/149

In progress

UA
UA

120

Union

Costs associated with municipal tax
increases as a result of Bills 106/149

In progress

121

Consumers Gas

Incremental costs associated with
remediating Year 2000 system
implications

In progress

Approvals Under Current Undertakings

EBO

177-11

Union

Acquisition of CIS Services from
Westcoast

April 3, 1997

EBO

177-12

Union

Transfer of Westcoast Energy Inc.
Part V.I tax liability for 1997 Tax Year

June 11, 1997

EBO

177-13

Union

Purchase of firm delivery gas from
Engage Energy

April 28, 1997

EBO

177-14

Union

Windup of Union's investment in
Mercap Insurance Limited

August 29, 1997

EBO

177-15

Union

Provision of Customer Information
Services

December 24, 1997

EBO

177-16

Union

Investment in Ford Cogeneration
Project

September 29, 1997

EBO

177-17

Union

Transfer of ancillary services

In progress

Outuiiu Energy tad ■ Anmial Bepuit 1997 - 1998

CASE FILE

TYPE NUMBER

APPLICANT

CASE DESCRIPTION

DECISION/ORDER
ISSUED

EBO

179-10

Consumers Oas

IPL Technology and Consulting
Services - computer based training

November 13, 1997

EBO

179-11

Consumers Gas

Joint venture with TransAlta Energy

February 26, 1997

EBO

179-12

Consumers Gas

To provide engineering and market
analysis to CGEI

July 18, 1997

EBO

179-13

Consumers Gas

To provide support to CGEI for
natural gas distribution in
the Maritimes

October 27, 1997

EBO

179-14

Consumers Gas

Transfer of CIS to an affiliate

In progress

EBO

179-15

Consumers Gas

Transfer of certain businesses and
activities to an affiliate

In progress

Other Matters

EBA

717

Metalore Resources
Limited

Limited Franchise Approval -
Norfolk County

Closed

EBO

184

Landowners

Sombra Pool

May 22, 1997

EBO

188

Ontario Energy Board

System Expansion

Aug. 15, 1996-
Interim/Final -
January 30, 1998

EBO

196

Consumers Gas

Black Creek and Coveny Pools

June 19, 1997

EBO

197

Consumers Gas

Black Creek and Coveny Pools

June 19, 1997

EBO

198

Consumers Gas

Black Creek and Coveny Pools

June 19, 1997

EBO

200

Union

Off Peak Storage - St. Clair Pipelines

May 30, 1997

EBO

201

CanEnerco Ltd.

Inject., store, remove Gas from
Chatham 7-17-Xll Pool

February 4, 1998

EBO

202

Legislative Change for Natural Gas
Deregulation

December 16, 1997

EBO

Consumers Gas

Agreement with Centra for storage,
compression and transmission
services

October 1,1997

EBO

204

Union

Off peak storage agreement with
Engage Energy

In progress

EBRM

108

Consumers Gas

Black Creek and Coveny Pools

June 19, 1997

EBRM

109

CanEnerco Ltd.

Drilling Permits Chatham
7-17-XII Pool

February 4, 1998

Glossary of Terms

Agency Billing and Collection (ABC) T-Service

A service that enables natural gas brokers to bill their customers through the LDC for
gas supplies purchased directly from producers. The name of the broker and the gas
supply charges appear on the customer's monthly utility bill, and the LDC collects the
gas supply charges on behalf of the broker for a fee. The price the customer pays for
gas is not regulated by the OEB.

Bulk Power Rates

The wholesale rates that Ontario Hydro charges municipal utilities and direct industrial
customers.

Buy/Sell

An arrangement under which end-users or their agents buy gas directly from producers,
sell the gas to the local utility for transportation to a site served by the utility's distribution
network, and then buy gas upon delivery at the regular retail rate.

Buy /Sell Reference Price

The price, approved by the OEB, which an LDC pays for a direct-purchase customer's
gas supplies. The reference price is based on the utility's weighted average cost of gas.
The gas becomes part of the utility's system supplies and the customer pays the LDC's
regular retail rate, which includes transportation costs, for gas consumed at the burner tip.
Buy/sell customers benefit when they or their agents are able to purchase gas supplies
from producers at a lower cost than the utility's buy/sell reference price. The customer
usually receives a rebate, generally representing a portion of the difference between the
price paid to the producer and the buy-sell reference price paid by the LDC.

LDC

Local distribution company.

Non-Subsidiary Affiliate

A subsidiary of the parent company of a utility, but not of the utility itself.

PGVA

The Purchased Gas Variance Account maintained by a utility to track the difference between
the forecast and actual cost of gas.

Rate Base

The amount that a utility has invested in fixed assets that are used or are useful in providing
service, net of accumulated depreciation, plus an allowance for working capital and any other
items which the Board may determine.

Ontario Eueiyy ted > Annual liipl 191!'/ - 19511!

Rate of Return on Common Equity

Utility income applicable to the common equity component of a utility's total capital, that a
utility earns or is authorized to earn, expressed as a percentage of the amount of common
equity approved for inclusion in the utility's capital structure.

Revenue Deficiency

The shortfall between the revenues required to achieve the allowed annual level of earnings
previously established by the Board and the revenues that will be produced with currently
approved rates.

Revenue Excess (or Revenue Surplus)

The difference, if positive, between the annual level of earnings that will be produced with
currently approved rates, and the allowed level of earnings established by the Board.

Revenue Requirement #

The amount of revenue that a utility must recover through rates to cover its costs of providing
service. The costs include such items as: operating and maintenance expenses, depreciation,
taxes and the return on capital employed.

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